Considering a change to your loan or lender?
An interest rate environment where home loan rates are rising or falling is a prime time to evaluate your existing mortgage. It may
well be that your existing mortgage is still adequate for your needs but in many cases changed circumstances may mean that you would be
better off switching to a more suitable loan. Now is the time to make a decision before rates change again and problems start to occur.
If you currently have a variable loan and are considering moving to a fixed then our Variable vs Fixed Rate Mortgage Calculator allows you to compare costs between the two types and test the effects of future interest rate rises on repayments.
Falling interest rates are not a problem if you have a variable rate loan. If however you have a fixed loan then you will obviously be paying more in interest than is necessary and you will have to pay a penalty to change from fixed to variable. Some lenders offer incentives to get their competitors customers to move over to them. Your best bet is to contact a mortgage broker and ask if there are any special deals that you can take advantage of.
Rising interest rates become a problem if you have a variable loan, and particularly so if you are on a fixed income. It is very difficult to predict the level of future interest rate rises. If you have any doubts about your ability to make repayments should rates move higher then you need to take immediate action. It is better to be safe and secure and paying too much if rates drop than being forced to sell in a falling market when you can't meet your commitments.
The preferred method of protection for most borrowers in Australia when rates are rising is the fixed interest loan. With this type of loan your interest rate and repayment is fixed for a set period, usually 1 to 5 years. At the end of this period it may change to a variable loan or you may be able to roll it over into a new fixed loan at the then current rate.
Another option to consider is a split rate loan. You have the security of knowing that the fixed portion provides partial protection against rising rates while the variable portion means savings if rates fall. This is a compromise solution that helps provide a safety net for those who have a bit of leeway with repayments.
Remember that whether you go split or fixed you are locking yourself into a contract that is expensive to break. Peace of mind comes at a cost, but if rates continue to rise you will very quickly come out ahead compared to a variable loan. Banks try to predict the direction of interest rates and this is reflected in their current fixed rate. Use it as a rough guide to future directions in your decision making. You may want to consider income protection insurance as additional security.
If you are thinking about refinancing, or need help and advice about whether to change your loan, discuss your options with a mortgage broker. Unlike banks who only promote their own products, a mortgage broker has access to lots of different loans and lenders and should be able to locate the best product for your needs, and there is no charge to you for their service. The lender pays.
Thank you for visiting our Web-site. We hope the information on changing loans has proved useful.
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